Legal Challenges to Fiscal Oversight Board Pose an Uphill Battle
It will be an uphill battle for Puerto Rico to challenge the constitutionality of the proposed law that would impose a fiscal oversight board to run the island’s government operations, legal experts say.
Walter O. Alomar Jiménez, a constitutional law professor at the University of Puerto Rico Law School, said it will be hard to prove the law is unconstitutional, because the U.S. Supreme Court says Puerto Rico is a territory and the U.S. Constitution grants Congress full powers over all U.S. territories.
“There is a faculty already granted by the constitution that allows Congress to modify the relationships with all territories. This board was born under the guise of the territorial clause. It would be a law authorized by Congress and the constitution; I can not see what the argument will be to challenge this law because the Constitution gives Congress the faculty to regulate all territories and the United States has already said we are a territory,” he said.
There will also be some strategic problems in challenging the law because the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA for short), states that legal actions against the Oversight Board will have to be brought in the U.S. District Court for the District of Columbia and appealed to the U.S. Circuit Court of Appeals of Columbia, except for actions related to enforcing subpoenas or making adjustments of debts.
The legislation will create a five-member board appointed by the President to have the final say on budgets and day-to-day government operations. Any government official who refuses to follow the orders of the board will be subject to criminal sanctions. It would also create a mechanism for debt restructuring that would require a budget plan and credible financial data before bankruptcy can begin under the guise of the board.
Carlos Ramos, a constitutional law professor at Interamerican University Law School, noted that the bottom-line problem with the proposed board is that just like the Military Law of 1900, the Foraker Act and the Jones Act, it is a unilateral imposition over Puerto Rico.
“Bottom line is that they say this is a conversation but it is not. It is an imposition,” he said, noting the broad powers that the board would exercise over the three branches of government. “You have to put in a historical context. This is a repetition of what we have been trying to fight for decades.”
While fiscal boards have been imposed on more than 100 jurisdictions, it will be the first time, with the exception of Washington D.C., that such a board is imposed by Congress over a U.S. territory. “In other jurisdictions, we have seen states impose boards over their cities as it happened in New York and Detroit, and they accepted it. Congress has never imposed a board over a state; the closest thing to this is Washington D.C., but Congress is already there so there is a difference with Puerto Rico,” he said.
Puerto Rico Bar Association President Mark Anthony Bimbela said the group’s constitutional committee is evaluating the law and is slated to present a report next month. However, he warned that the proposed law “may be a violation of international law.”
Daniel Hanson, an investment adviser, said he sees several constitutional challenges involving the board’s authority to create a bankruptcy plan to impair suppliers, pensioners, or others. “Second, the legislation probably muddles the debate over so-called Article III judges and the role of bankruptcy courts in the federal judiciary.
“Since district court judges and bankruptcy judges operate under separate authority, as derived from the U.S. Constitution, the authority of bankruptcy plans to be adjudicated and enforced in district courts has long been in dispute, with a compendium of nuanced and important case law to support the notion that no one really knows exactly how the Article III/non-Article III distinction around judges applies to bankruptcy.”
“We are concerned that Congress further complicates this debate with the weird cross- application of territorial law, federal law, and bankruptcy law that exists in this bill, leading to vulnerabilities in the legislation itself and broader questions of precedent for the legal system,” he stated in a commentary on the law.